Insights 
VT 
The UK services sector experienced a downturn in April 2025, with the Final Services PMI at 49.0, down from 52.5 in the prior month. This is the first contraction in one-and-a-half years, as new work orders declined and export sales saw the fastest fall since February 2021.
Expectations for business activity have hit a two-and-a-half year low, with global financial market turbulence, such as US tariff announcements, affecting order books. Input prices rose due to increased National Living Wage rates and National Insurance contributions, marking the steepest rise since summer 2023.
final composite pmi figures
The Final Composite PMI also declined to 48.5 from 51.5 previously, indicating weaker conditions across the services and manufacturing sectors combined. Business expectations for the year are low, with 22% of firms predicting a decline in activity in the next 12 months, a rise from 14% in March. This outlook reflects concerns about prolonged global economic challenges and heightened risk of recession.
The recent contraction in the UK services sector marks a meaningful shift in sentiment, particularly as we witness a drop below the 50.0 line on the PMI scale—a threshold that separates expansion from decline. The April Services PMI sitting at 49.0 follows over a year of minor gains, suggesting that forward indicators no longer support a steady recovery. New work falling away is more than a short-term flicker. Export orders deteriorating at the fastest pace in over four years signals something deeper than seasonal variation or transient shocks.
From our point of view, the reduction in export demand has likely been intensified by instability outside Britain’s borders. The exposure to external disruptions—most evidently the tariff changes in North America—has filtered through into sentiment on both sides of the supply chain. Forward momentum has been eroded as firms struggle to predict how global trade terms will unfold heading into summer.
Cost pressures present another obstacle that can’t be ignored. Rising wages under the updated National Living Wage legislation, combined with higher employer contributions to National Insurance, are squeezing margins. These aren’t isolated or one-off adjustments; businesses must now earn more to stand still, and many of them won’t.
broad decline with shared softening
The broader Composite PMI, which incorporates both services firms and manufacturers, fell to 48.5. This mirrors a shared softening that isn’t confined to one part of the economy. The decline in this consolidated reading removes hope that industry strength might balance out the softness in consumer-facing activities. Instead, it reinforces that the contraction is not localized, but widespread.
Looking at expectations, a rising number of firms are now bracing for falling output over the year ahead—up nearly ten percentage points from the previous month. That’s an indicator we place weight on, as it implies decisions around hiring, investment and inventory are likely to recalibrate accordingly. In our experience, this aligns with a more defensive stance across operations, meaning fewer risks will be taken for growth.
So, if you operate in areas where directionality matters—such as those informed by momentum indicators or short-dated rate path expectations—this change in tone deserves attention. An uptick in volatility driven by uncertainty usually opens more frequent pricing gaps. Markets tend to reprice when forecasts shift materially. Strategic positioning might gain from applying more weight to forward-guided sectors outside discretionary services. Short-term direction in interest rate futures could point towards softening policy outlooks. But we’d watch closely to see whether central messaging catches up with this data—or continues to lean on previous assumptions.
And although some focus may cling to seasonal distortions or scheduled policy announcements, we prefer to anchor on trend data. This downward move is not a blip against a strong backdrop. It suggests there is less confidence just beneath the surface, and that market participants are now recalculating risk exposures based on more limited upside. Any models that rely heavily on optimism over real income growth may require re-tuning.
Sharp policy divergence could complicate things further. We’ve seen before how sudden headlines alter flows and crowd conditions, so being ahead—or at least not caught behind—would matter here. Instruments linked to relative growth or implied rate spreads are likely to react before slower markets reprice. In that regard, it isn’t helpful to discount pessimism as a passing phase when business leaders are already adjusting staffing, spending and production plans in line with what they see just ahead.
